The statement of cash flows classifies items as
operating, investing, and financing.
The statement of cash flows classifies items as operating activities, investing activities, and financing activities. These classifications help to provide insight into the cash inflows and outflows of a business during a given period.
Operating activities involve the cash flows that arise from the day-to-day operations of a business. This includes cash receipts from customers and payments to suppliers and employees. Operating activities are ultimately used to determine a company’s net cash flow from operating activities.
Investing activities involve the cash flows that are associated with the acquisition or disposal of long-term assets. Examples of investing activities include the purchase or sale of property, plant, and equipment, as well as investments in other companies.
Financing activities involve the cash flows that arise from the issuance or repayment of debt or equity. This includes borrowing money from creditors, repaying loans, and issuing or repurchasing shares of stock.
By organizing cash flows into these three categories, the statement of cash flows helps users to better understand a company’s use of funds and its ability to generate cash from operations.
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